EXPO Legal Panel:
The Nightmare of Dynamex
As reported in the March issue of ED Magazine, the Dynamex case has meant that clubs in California have had to change the employment classification of their entertainers—from independent contractors to employees—literally overnight. So, what has that meant for them—and what does it mean for you? That’s what we’ll discuss at EXPO 2019.
The California Supreme Court’s recent Dynamex decision has forced the state’s gentlemen’s clubs to make their entertainers employees and it’s just a matter of time until it spreads to other states. The EXPO 2019 Dynamex Legal Panel brings together two premier California club operators, Spearmint Rhino president Kathy Vercher and BSC Management managing member Joe Carouba, to explain how Dynamex has impacted them and what steps they’ve each had to take in their attempts to remain profitable and compliant without losing all of their entertainers. In addition, top employment attorney Tammara Bokmuller, who is challenging Dynamex in a major suit, has also been added to the panel.
The Spearmint Rhino chain has 17 U.S. clubs, 14 of which are in California (though not all are under the brand name “Spearmint Rhino”). Clearly, the Dynamex decision is having a major impact on Rhino’s California operations and it’s almost certainly just a matter of time until Dynamex’s mandate spreads to the other states in which they operate.
“It’s such a burden on the staff, the entertainers; it’s like an entirely new culture in the clubs,” explains Vercher, who revealed some of the changes her clubs have made to comply with Dynamex. “The girls have always wanted to be able to come and go as they please, but that’s all changed now. Now, it’s, ‘You’re employees. We want you here at 11 a.m., you’ll clock out at 5 p.m. and you’ll dress like this and talk like this,’ But I didn’t want to do any of that because it will go against what many of them are attracted to: the freedom of the lifestyle.
“We’ve tried to just make it as less impactful on them as possible,” Vercher explains. “Which has then become a burden on the managers and extra staff I’ve had to hire to manage all this because we went from giving 10 people their 30-minute (required by law) breaks to now, you’re scheduling entertainers.”
California labor law requires timely, periodic 10- and 30-minute breaks for newfound employee entertainers (and all other employees) or else there’s a penalty. The timeliness of these breaks plays havoc with profitable VIP room sessions for entertainers, notes Vercher. “Now you must get these breaks scheduled quickly, making sure they’re happening at the right time,” she explains. “And you don’t want to pull a girl from a customer.”
Vercher notes that every night in the clubs has become a juggling act, as everyone adjusts to their “new normal.”
“Do we fully understand the full ripple effect right now,” questions Vercher? “No, we don’t, because it’s all so new. What we rolled out as, and what it will be in probably three or four months, is evolving. The entertainers (in California) will still be employees, but how much will I have to change the way owe operate as a corporate entity? We don’t fully know that impact yet.”
Vercher explains that she dreads the fact that she must now prepare for the inevitable spread of Dynamex-like requirements across the country. “As chain operators, we understand that when something like Dynamex happens in one state, it’s a trickle-down effect. I have to now look at all of our other clubs in all of our other states to prepare for something like Dynamex.”
Carouba says due to Dynamex, BSC Management’s 10 San Francisco clubs have been forced to operate with a completely different business model than before.
“It might look like the same club, but it has to be run completely different,” explains Carouba. “We must now schedule entertainers, like all other staff, because we can’t have entertainers on the floor who aren’t making money. It used to be, the club with the most girls wins. Now, if customers come in to a smaller club at 6 p.m. and see four entertainers, you won’t be able to grow your business with that.”
“As chain operators, we understand that when something like Dynamex happens in one state, it’s a trickle-down effect. I have to now look at all of our other clubs in other states to prepare for something like Dynamex happening there.”
- Kathy Vercher, President of Spearmint Rhino
|Tammara Bokmuller||Joe Carouba||Kathy Vercher|
Carouba adds, “We’re finding that this business model just doesn’t work with some of our smaller clubs, where the entertainers were never big earners. The entertainers are paid minimum wage, plus commission, which in San Francisco, with all in could cost the employer up to $23-24 an hour! So if she’s on the floor for six hours and does 3-4 dances, you’re upside down.”
“We think what’s going to happen is, unfortunately, some of our smaller clubs will not survive the changeover,” says Carouba. “Our dancer pool in San Francisco has already shrunk by several hundred because you just can’t afford to have them on staff. So this idea of protecting the entertainers through employment has already cost 200-400 San Francisco jobs.”
Bokmuller, a partner in the San Diego-based Bowman and Brooke law firm, has extensive experience in employment law having handled a myriad of employment disputes for employers including class action litigations, wage-and-hour disputes, unemployment claims, workers compensation trials, as well as wrongful termination, retaliation and discrimination claims.
She is representing the Southern California Déjà Vu clubs in a pending federal class action challenge of Dynamex.
“It’s the same as all of the litigation Déjà Vu has been involved with for the past 10 years with the ongoing fight of whether these dancers are properly classified as independent contractors versus employees, in light of Dynamex.
“The California courts appear to be holding that Dynamex is retroactive, making things even more difficult for the clubs,” adds Bokmuller.
She says the Déjà Vu clubs have California Employment Development Department (EDD) decisions, going back 20-30 years, confirming their method of treating entertainers as independent contractors is proper. She notes the courts are interpreting Dynamex as not necessarily new law, just a different interpretation of current law with the substitution of the Dynamex employment test for the previous Borello test.
“While the courts feel it’s the same thing,” explains Bokmuller, “we obviously don’t agree. We think it’s a brand-new completely unconstitutional test and that they’re holding it as retroactive.”
Bokmuller cautions club operators across the country. “California is not the first state to introduce an ABC test. Several other states already use the ABC test to determine whether individuals should be classified as independent contractors as opposed to employees.
“Indiana, Massachusetts, Nebraska, Nevada (though Nevada has a carve-out, deeming dancers as independent contractors), New Hampshire, New Jersey, New Mexico, Tennessee and Vermont also use ABC tests and Washington State is considering pending legislation to embed an ABC test in its labor laws.”
The EXPO 2019 Dynamex Legal Panel on August 14 will get you up to speed on this all-important threat to your club’s profitability and its very survival and provide the information you need to know.
This article briefly summarizes extremely complex legal issues and is provided for general information purposes only and is intended to provide neither an exhaustive analysis of these matters nor any specific legal advice or recommendation. Laws vary by state and municipality. The positions and opinions expressed by the attorney and club operators represented here are theirs alone, and do not necessarily reflect those of ED Publications. Club operators and others are strongly encouraged to consult their attorneys for specific advice on how these issues will affect them and what measures to take. Larry Kaplan and ED Publications do not guarantee the accuracy of this information.